Federal Contracting Process Undergoes Make-Over


May 2009

Federal Contracting Process Undergoes Make-Over


President Barack Obama's "time for change" continues, this time in the form of how government contracts are awarded. Citing soaring spending on government contracts—the number has doubled to more than $500 billion a year since 2001—President Obama announced in March his new plan to trim the fat from the federal contracting process. Obama says his plan will save taxpayers about $40 billion a year by making the contracting process more transparent and competitive, but as $787 billion in stimulus money pours into the economy, it is unclear whether increased vigilance regarding federal contracting will really succeed in preventing waste.

The president has ordered his budget chief, with help from agency heads, to compose guidance by July 1, outlining how the entire government can review its existing contracts and identify the ones that are wasteful or nonessential. He has also directed White House Office of Management and Budget Director Peter Orszag to work with Cabinet and agency officials to draft new contracting rules by September 1 that would improve oversight, include more limits on no-bid contracts, help agencies form staffs to perform oversight functions, clarify when contracting to private companies is acceptable, and make about half a trillion dollars in federal contracts more accessible to independent contractors each year. President Obama has also declared his preference for fixed-price contracts.

The president's pledge to end waste in federal contracting will face an early test as agencies begin to distribute money for projects funded by the American Recovery and Reinvestment Act. A shortage of procurement officers could make it difficult for stimulus money to be spent quickly. And because ARRA was designed to funnel a large amount of money into the economy over a short period of time, turnaround for spending the funding is tight; money that is not spent in time will be forfeited, adding another complication to the already strained procurement system and possibly resulting in even more waste. The president's attempts at transparency and accountability will also slow the flow of money: Agencies must submit regular reports to www.recovery.gov on how the stimulus money will be spent, adding even more paperwork to what is already a labor-intensive and time-consuming process.

The new requirements aim to prevent the kind of waste and corruption in other situations where money was spent quickly, including during the Iraq war and after Hurricanes Katrina and Rita. More than 140 allegations of contract fraud in Iraq, Kuwait, and Afghanistan are under investigation, and the Government Accountability Office found as much as $1.4 billion in waste from the hurricane relief efforts.

The risk to Obama's well-intentioned overhaul of federal contracting is that it is too broad to cull the good of the contracting process from the bad. While qualifications-based selection has not been specifically targeted as a source of waste, it is likely that QBS will be challenged at the federal level over the next four years. The engineering community must work to distinguish QBS from wasteful practices that have been associated with "special interests" and cronyism and to ensure that the concepts of price and value are not conflated. Despite sometimes carrying a higher price tag, projects that use QBS are often delivered faster, with fewer change orders, and with lower life-cycle costs. Moreover, where the public health and safety is concerned, quality should be the first basis for selection. QBS does not mean that price is not a factor, only that price is not the first basis for consideration—a common-sense standard for selecting all professional services.

On Capitol Hill, the newly formed Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight will have broad oversight authority over all aspects of federal contracting. Subcommittee Chair Senator Claire McCaskill (D-MO) is circulating an open letter asking industry experts to offer their opinions on the most urgent federal contracting issues. (To submit your comments, visit moderator.appspot.com/#16/e=21780 or e-mail the subcommittee at contracting_oversight@mccaskill.senate.gov.) Many contributors called for greater transparency of contracting documents; others urged more government accountability of taxpayer dollars.

McCaskill said the subcommittee would rely on the assistance of auditors, inspectors general, contractors, local chambers of commerce, and watchdog groups to investigate contracting abuses. She said the panel will have the authority to conduct independent investigations and will hold frequent hearings that will examine both past mistakes in contracting and ways to improve the system. The subcommittee will be in place until the end of the 111th Congress. The next Congress will decide if it should be reauthorized.

The House Armed Services Committee is also forming a special panel, chaired by Congressman Rob Andrews (D-NJ), to examine ways to improve the Defense Department's troubled procurement system. The Panel on Defense Acquisition Reform, which will be established for a minimum of six months with the option of being extended for another six months, will seek to address the Pentagon's continuing problems in acquiring goods and services on time and on budget. The panel will release a report on its findings to help guide the drafting of the FY11 Defense Authorization Bill.